RBI raised rate despite opposition from experts

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SME Times News Bureau | 18 Nov, 2011
The Reserve Bank of India (RBI) hiked key policy rate despite majority of external experts advising the apex bank against such a move amid concerns that tight monetary policy had failed to moderate inflation.

"On monetary measures, while one external member suggested an increase in repo rate by 25 basis points, other five external members were of the view that repo rate should not be changed," said minutes of October 19 meeting of RBI's Technical Advisory Committee (TAC) on Monetary Policy.

In the second quarter review of the monetary policy for the current fiscal, announced on October 25, the RBI increased the repo rate in its bid to tame inflation. It was the 13th increase since March 2010.

The TAC, which is advisory in nature, is headed by RBI Governor D Subbarao. Besides top RBI officials, the TAC comprise external members

As per the minutes, some others had suggested for a pause in hike in further hike in interest rates, but opined that the message of the Reserve Bank's policy should be hawkish.

All members of the committee observed that inflation was a major concern, they said it would not ease immediately. Some other members felt that inflation was driven by external/supply side factors and, therefore, the monetary policy tightening was impacting investment and growth and not inflation, the minutes said.

The members, however, hoped the international commodity prices would soften gradually and help in moderate inflation.

Amidst global developments, the TAC members also observed the economic growth was moderating., with tight monetary policy and other factors affecting investment.

Some TAC some members raised concerns over the high fiscal deficit and the risk of it slipping in the current financial year, according to the minutes of the meeting.